- Working Papers
- Log in
The aim of this paper is twofold. First, it shows how a standard stock-flow consistent model (SFCM) can be modified to embed some fundamental insights from Graziani’s theory of monetary circuit (TMC). Second, it aims at addressing some common mis- conceptions about the TMC. More precisely, it is argued that: a) a market-clearing price mechanism does not necessarily imply a neoclassical-like closure of the model; b) the ways in which SFCMs and the TMC define bank loans are mutually consistent, although they are based on different accounting periods; c) consumer credit is final finance, not initial finance; d) the paradox of profit is not a logical conundrum, but an abstract counterfactual that allows shedding light on a neglected role of government spending; e) overall, the TMC can be regarded as a “Marxian” rendition of Keynes’s method of aggregates.
Keywords: Theory of Monetary Circuit, Stock-Flow Consistent Models, Macroeconomics, Monetary Economics
JEL classification: E11 E12 E16 E17